GM's Dumbest Move Yet

General Motors is bankrupt, but judging from Chrysler's experience, it won't be for long. While GM management initially expected to spend two to three months in Chapter 11, smaller rival Chrysler managed it in just six weeks, start to finish. With the clock now a-tickin', I suspect a lot of investors are counting the hours until they can finally buy shares in GM again.

My advice: Don't do it. This company may not be dead, but it's terminally stupid.

Bad VibeGM proved the point yesterday, when it announced it is ending production of the Pontiac Vibe at its famed New United Motor Manufacturing Inc (NUMMI) factory in California, a decades-old joint venture with Toyota (NYSE: TM) that has already paid off in spades.

Why is this a bad idea? Three reasons:

Great car, great performerAccording to data from CarMax (NYSE: KMX) , the Vibe consistently made the top 10 list for most fuel-efficient cars sold in the U.S. from 2003 to 2006 (pushed off only in 2007, when Nissan (Nasdaq: NSANY) and Honda (NYSE: HMC) began hawking their Versa and Fit mini-cars, respectively).

Our modern era of high gasoline prices has made fuel economy a key selling point for small family haulers like the Vibe. In evidence of which, the Vibe's sales have outperformed both parent company Pontiac and Toyota this year. Pontiac sales through the end of May plummeted 48%; Toyota, 39%; but the Vibe, just 35% -- making it the relative best-in-show.

The anti-Pontiac PontiacLate last year, when I moved our household into Detroit's backyard (Indiana), one of the first things I noticed was the large number of Vibes I saw on the road. But just why is it that this car in particular is holding up so much better than the rest of Pontiac?

Call me a penny-pincher if you will, but I bought the Vibe myself -- and I can tell you from personal experience: It's because the Vibe is not a Pontiac. Manufactured at NUMMI to the specifications of its Toyota Matrix twin, the Vibe is essentially a Japanese car in Detroit drag.

You see, while GM originally set up NUMMI in order to get a firsthand look at Toyota's manufacturing processes, in this case the advantage to GM has been more penumbral. No matter how many times J.D. Power & Associates assures us that Detroit quality is on par with Japan's -- and in many cases superior -- reputation remains a tricky thing.

Thus, in selling the Vibe, GM gets to piggyback on Toyota's reputation for quality even as it made great strides in improving its own actual quality of production.

Survey says ...Speaking of quality, I have to say that GM's made a habit of killing golden geese such as the Vibe. Once upon a time, the company reinvented car sales with Saturn. The new division emphasized quality, service, a close relationship with its customers, and fixed, no-haggle prices (a la CarMax). The concept worked well initially, until GM got distracted by trying to save Oldsmobile and starved Saturn of capital, ultimately doing serious damage to the division's brand.

Or take the case of the S-10. In 2005, the Chevy S-10 small pickup won praise from J.D. Power as the most dependable small pickup sold in the U.S. (judged based on the number of problems reported on cars built three years previously). Second place in the survey went to ... the S-10's twin, the GMC Sonoma. Yet GM killed the S-10 at the top of its game. One year before the 2005 survey results came out, GM had shut down S-10 production, replacing it with the slightly larger Colorado.

And how has that worked out, you ask? The Colorado hasn't earned a top dependability rating from J.D. Power even once.

Not all bad newsNow, to give credit where it's due, I should point out that GM is making some right moves. For example, last week the company announced termination of the leases on its fleet of corporate jets.

That's bad news for General Electric (NYSE: GE) , which leases the Gulfstreams built by General Dynamics (NYSE: GD) to GM. Investors, however, may latch onto this as evidence that GM is finally getting lean and mean enough to survive in today's automotive market. (Ford (NYSE: F) , by the way, has also announced it's giving up its jet fleet.)

Of babies and bathwater ...While I applaud GM's newfound commitment to improving its own profits rather than subsidizing airplane dealers, it's going to take more than grand gestures to turn GM into a winning investment. What GM really needs is a dose of common sense.

Kill the Pontiac brand? If it's underperforming the rest of the company, sure. But don't throw out the Vibe with Pontiac's stanky bathwater. Rebrand it as a Chevy -- just as GM imports Daewoos into the U.S. as "Chevrolet Aveos." Killing the Vibe just because its brand is going away seems as obtuse as the solution is obvious. Unfortunately, it's also par for the course at GM.

Should GM save the Vibe? Cast your vote in the comments section below.

Fool contributorRich Smithdoes not own shares of any company named above, but used to own a Chevy S-10, and currently drives the wife's Pontiac Vibe (to dealerships, in search of a new truck). Clearly, he reads the J.D. Power reports -- and cannot fathom why GM apparently does not.

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GM has been my choice of ride for since 1972 when I purchased my new Monte Carlo for $4,725 total at Banks Chevy in Concord, NH. In these days small dealers did not have a sea of unsold cars in lots. They had several examples for demo. Then something like a paper menu. You got to choose the options you wanted. You ordered and in a week or so you picked up your new car. It was great.

Maybe its time to cut the cost of these huge overheads at dealers and let them order units as they are sold. Back in 1972 UPS did not have "On-Time Delivery" and it still worked. Food for thought !

PS: Forgot - I would think with the pressure on CA due to its budget. The high unemployment in the state. That this plant would be one that would be kept open. That and the fact that it is profitable. Or are the Union rates in CA JUST TO HIGH?

Well considering the pressure gm is under from the government to end all Pontiacs I dont think they would have been too fond of gm just labeling it a chevy. Gm doesnt like the small gas saving cars like the vibe and the s-10 for trucks, because they hardly make the company any money per vehicle. Being a Gm employee for the last 10 years I have seen many good vehicles go and bad ones stay, but I would have to disagree with you on this. The pontiac g-8 is the best looking vehicle gm has made is years, the g-6 is a sportier better gas car than the vibe, the bonneville, grand am, grand prix, and solstice would have been better kept alive than the vibe. I think all of poniac should have stayed, gm should have done away with gmc and all other clone vehicles and just made one version ex. acadia-outlook, silverado-sierra, trailblazer-envoy-ranier-bravada, solstice-sky, etc. and that the company should have worked saturn into the company instead of operating it independantly. Good point on GM being stupid. I could go on for hours!

Our great leader,in not allowing GM to file a "normal" chapter 11or 7,but instead creating a ward of the taxpayers has allowed the people who destroyed the company to now run what is left of it. Common market sense is now gone and will never return.A "normal" bankruptcy would have allowed the company to be rebuilt by investors without union or government baggage. Without dealers or product,there will be no "market share recovery" within ten or twenty years when you consider the competitions product line which is up and running away from the remains of the big 3,all that is left will be the crumbs to fight over.There has never been a successful gov. run auto business.

GM's management was bloated, bureaucratic and made lousy cars. My last one was a 1965 Chevy Super Sport. I went to Japanese and German and never looked back. Add in union demands above what the company could afford and you have a relic of the past. Let's see some new U.S. car companies without the unions. All senior GM management should be shown the door. Yes, our government should not have bailed them out, but the focus of the problem was and always will be GM.

It just makes me sick the way everyone keeps bashing the union in this whole mess. As if it is soley on the sholders of the millions of union autoworkers who has for years built the very same vehicals that all of us have drooled over most of our lives. Lets all not forget that the union work force has always been one of the most prolifant forces behind building the middle class and what about all the peaple that work as waitresses in restraunts or clerks at the department stores, or any other person working in the retail buisness who have as a result of the middle class been able to thrive for years as well. Keep in mind how the CEO's and the executives of these very same companys continued to scwander away money on lavish bonus checks, outragious saleries and flights on the corperate jets to their executive only retrets while the media was demanding concesions from the middle class autoworkers. These are the same executive who have been designing the vehicals that the union workers have been building yet the media costantly talks about how the quality of these vehicals is not that of the forign automakers and know one blames them for any of this mess. As for the Vibe, you know the joint venture vehical with Toyota, I say goodbye. Maybe its time america should start reinvesting in our own american made products instead of all the forigin made stuff. And last but not least, while your enjoying your paid vacations this summer remmember that it was the unions that started that and forced big buisness into providing it for you, as well as most all of the fair labor laws that are now in place for ALL workers not only union workers.

Unfortunately GM didn't jettison all the lousy executives who made bad decisions over the years. Dumping the Vibe won't be the last bad decision.

I'm struck by the difference in directions Ford and GM are heading. Ford has had it's share of trouble, but they seem to be making more right moves than mistakes. Supposedly Alan Mullaly said that if Ford can't make money on small cars they don't deserve to be in business. If true, this is refreshing thinking from one of the American 3 executives.

I hope GM and gets the message that smaller but profitable beats their current direction. I am concerned that with all the gov't money GM will try to hang onto market share with fewer divisions and fall flat on their face. Realistically we need as many cars built in the US (Canada and to some extent Mexico) as possible. If Toyota, Nissan, Honda, Mazda and others create new jobs, so be it...

...but it is going to take good decisioons to get their, and I'm not convinced GM leadership is up to the task.

Well maybe we at GM should just keep on building cars that Don"t sell well enough to turn a profit so we can take more of your tax money.

The Goal is to return to profitablility in case you missed it. and Phase out the products that are not profitable. Weather the vibe is a car that you personally like and also think its the dumbest move yet to shutter it shows just how much your logic makes no sense. The vehicle is not profitable.

Should we keep building cars that do not make enough return on investment or should we just keep selling them at a loss? Or should we listen to you?

We own GM! Our money was stolen form us by the goverment to bail out a corporation based on a foundation of repeated failures. Obama is an elected official, not a dictator for life. Vote him out in 2012.

The Chevrolet HHR is selling vastly better than anyone thought it would. Gets similar MPG to the Vibe, is a utilitarian vehicle with controversial looks like the Vibe, and is sitting on the Consumer Reports recommend list due to high quality.

From your story, "But just why is it that this car in particular is holding up so much better than the rest of Pontiac?"

Look at the Pontiac Grand Prix, in its non-supercharged form it has been on the recommended list from Consumer Reports as a used car for years, and has topped the JD Powers report in past years for class quality.

Ya I know, they killed the Grand Prix too and the G8's quality is in the toilet.

I can't imagine buying a Pontiac G8. I went down last week to pick up my 2010 Camaro SS, and next to it was a G8. The car was a four door sedan adverstised as a sports car, had a price tag much higher than the Camaro SS, and on top of that was levied a gas-guzzler tax that put this car WAY out of line price-wise. My SS was thousands less, and is far more car for the money.

As for the Pontiac Vibe, perhaps it was a good deal for Chevy and certain groups of customers. Apparently I'm not one of them. I like my car at 426 HP and 28 MPG highway. That'll do.

In 1985 when I got rid of my last GM made automobile I predicted that GM would eventually go bankrupt. The atrocious quality of my last GM car AND the extraordinary arrogance of both the dealer and the GM reps I sought help from was evidence that GM was on the road to consumer rejection.

I had just completed my MBA when I bought my 2nd GM product. I specialized in marketing and strategic planning. GM was the antithesis of a company that was destined to prosper.

The small vehicles they built were deemed unprofitable because of the way GM allocated overhead costs. GM sales tanked leading to an enormous growth in fixed costs: retiree pensions and benefits and excess capacity.

Selling more smaller vehicles with smaller absolute contributions to profit and overhead over the last 20 years would have avoided the rapid growth in fixed costs associated with the burgeoning population of retirees.

Claiming that the Vibe or the S-10 were not profitable involves adhering to a cost accounting method that is easy to use but makes no sense. Profitability should be measured by contribution margin stripping out all the fixed costs.

GM needs to make cars that sell. Its survival is contingent on establishing a reputation for quality, without it its vehicles won't sell. The Vibe had instant credibility because it was made by Toyota.

Mullaly was right. If a US mass producer of cars can't make money selling small cars it shouldn't be in business.

I have had only the best of luck with my 8 GM vehicles I have owned over the last 25 years. I drove my Chevy Corsica until it had 385,000 miles on it, and it still was going strong. I had 4 Saturns, and now have a 2004 Cavalier and a 2008 Chevy Silverado.

Quality isnt the problem. Look at the Japanese brands: the Toyota Corolla, Honda Accord, Nissan Maxima; these models all worked well and held up well saleswise for thier respective manufacturers; while GM kills off every model that they come out with that is a great car. Case in point: the Cavalier. My Cavalier gets 41 mpg, has over 100,000 miles on it and I have spent $0.00 on it for repairs. But what did GM do? They discontinued the Cavalier and came out with Cobalt. Cavalier replaced the Celebrity, and the Celebrity replaced the Chevelle. It is an ongoing thing with GM: come out with a car, with poor quality in the first 2 production years; then perfect it and work out the bugs until it is finally a great car, THEN DISCONTINUE IT.

I dont own GM stock. I had several shares of Ford but sold them for a 155% profit to use to buy the Chevy Silverado. I thought it was funny too. And the Chevy salesman loved it.

I will continue to buy GM products as long as they are manufactured on US soil. You could not give me a Dae Woo or Aveo. I will not be purchasing the Chinese made Buick either. If GM sends all of thier manufacturing jobs to Asia, I will start looking to Ford for my next vehicle purchases. Sorry, Chrysler/Dodge never had a chance with me.

If Mr Arney the gov in Ca.was on the ball he would have the state buy the rights to vibe including the agreement with Toyota and continue production of a great car, with good mileage, very practical and a reason able price.

i hope the people speak by not buying either of these cars and send both GM and chrysler into bankruptcy for good and in the process save taxpayers countless billions we no longer have..these disgraced companys failed for good reasons and they are not going to change....

Killig the Vibe was definately a bad move. The car was well liked, a good measure of how much is getting a used car magazine. See how many Vibes are for sale, and at what price (well before GM decided to kill it a couple of months ago) Now compare those numbers to how many G6, G8 are for sale.

It is not easy to get a used Vibe, the reason i see for this is that people are not so willing to get rid of their Vibe as readily as they would with other car.

I planned all along to run my Vibe to the ground (IE own it till it was finished) but people who were planning on updating it every so often just got burnt by GM... the resale value dropped significantly when GM said, the Vibe is Dead.

To add insult to Injury, here in Canada, GM sent a letter of "apology" with a $1000 cupon for your next GM purchase... Valid only till the end of August 2009!!! Like we are going to rush to buy their newest vehicle before they are out of Bankrupcy... and only a few months after they killed the Vibe.

IF anything, that coupon could have been a good thing if they had left it open for at least a year... but no, it was not really a very meaningful apology.

My next car will be Korean!!! They are cheap when you buy them, so I don't care if the company goes bankrupt or the resale value is low... i paid cheap to begin with.

I chose the Vibe for its design AND the fact that it was manufactured under Toyota's specifications.... also because the total cost of ownership of a Vibe was supposed to be below that of an Kia Rondo.... due to the higher resale value of the Vibe!! Well now i know i should have gone with the Rondo.